NPR on Jobs in the Energy Industry

Hal Salzman sent me this NPR story - part of a series on bright spots in the economy - on jobs in the energy industry. You wouldn't know from the price problems and the attacks on Obama, but energy production is up. The story specifically covers petroleum engineers:

"New drilling technologies and rising fuel prices have generated a boom in drilling — and lots of high-paying jobs for people with the skills to work in the oil patch. On some college campuses, companies are so eager to find petroleum engineers that they are offering jobs to students even before they have graduated."

That's not a story you hear very often around employment prospects of graduates!

Some thoughts on work

I've seen a lot of good stuff on labor/skills shortages/skilled labor issues recently and was going to share a few random musings. I don't endorse all of this stuff (I'm generally skeptical of general shortage claims), but it's worth chewing on:

- First, there's been some good discussion of returns to different majors. I haven't had the time to look at this stuff in detail -there's a lot of self-selection in this sort of thing so I hope everyone is citing good studies that take that into account. This was a particularly interesting post on STEM (science, technology, engineering, and mathematics) degrees by Arnold Kling. I don't endorse the "STEM shortages" claim, but I do think this post and the links in it have some interesting material on grade inflation and college major choices.

- Granted, you have to be careful when you say you don't endorse the STEM shortages claim, because some people then want to lump you into the Lou Dobbs crowd. I've met and had conversations with both Ron Hira and Norman Matloff (both interviewed here by Lou Dobbs). I'm often sympathetic to Ron's high-quality work on the H1-B (although I don't agree with all the policy conclusions he draws from it). I have much bigger problems with Matloff's claims. One of my problems with this video is that they jumble a lot of different labor markets. I do think there are big problems with the post-doc labor market. I think there are trends in the labor market for software engineers that are definitely unfortunate for software engineers themselves. But I don't think you can look at gluts or dynamics in these very unique fields and make broader claims about how we have more than enough skilled workers.

- So I am not a "staple a green card to their diploma" STEM shortage guy, but I'm also not a "we're flooded with foreign labor and Americans will never do science" guy. Another prototypical position to take in this whole debate is the "forget the scientists - we need more skilled blue collar workers" position. Like the other positions, I think there's a grain of truth to this but I can't endorse it completely. We do under-invest in mid-level skills in this country. We have a bifurcated education system with a lot of four year degree liberal arts majors (which is fine - civilized society needs liberal education) that we put a lot of money into on the one hand, and a lot of high school grads, GED holders, and dropouts that need more investment in their human capital on the other. We know solutions that work - apprenticeships, community college, career and technical education. Some of these are on the rise, which is good - some aren't. If there's any truth to the "skills shortage"/"skills mismatch" story it's on these jobs with these skills. Technical, high-value work that does not require a four year degree. Mike Rowe has a great promotion of this issue here (again, I can't endorse everything he says about skills gaps, etc. - but he's focusing on important issues despite those disagreements that I'd have... and yes I'm actually embedding Mike Rowe's video but not Lou Dobbs because I like Rowe decidedly more than I like Dobbs):

- Finally, because the science and engineering labor market holds special interest to me, I've always been interested in the compensating wage differentials literature - a factor that I think for obvious reasons plays a huge role in this market. I was reading some of Einstein's essays last night, and I came across this great passage that really highlights why compensating differentials are so important when we think about scientists. He writes:

"The most important motive for work in the school and in life is the pleasure in work, pleasure in its result and the knowledge of the value of the result to the community." (from "On Education", 1936)

I (obviously) think one of the chief determinants of work is the monetary compensation received for that work and the marginal productivity that firms get out of purchasing labor. Einstein has not swayed me from this view. But I strongly agree with Einstein that that is not the full extent of our relationship with work, and in scientific jobs particularly, there are often motives much broader than earning an income that have to be considered.



Those are some scattered thoughts - I've been thinking about the STEM labor market recently because I'm getting ready to write an application for an IHS fellowship discussing the market for scientific labor. As I've said before - the market works. There's no real evidence of doomsday shortages. There are all kinds of interesting dynamics and adjustment processes in this specialized labor market - and lots of implications for growth and sustainability in general. There's lots of fascinating stuff for an economist to talk about. But the sky-is-falling mentality that a lot of people have is simply not justified.

OWS and the labor market for scientists

Scientific American has an interesting article on scientists and science students participating in the OWS protests in Baltimore.

I wish I had more time to discuss this, because they're talking specifically about biochemists and the market for biologists is actually an interesting and unusual story. My read on most science and engineering labor markets is that concerns about shortages are way overblown - most of these markets are functioning just fine and respond well to price signals. Biology is a little different and has experienced a genuine glut in PhDs, so the concerns expressed here are in some ways unique to that field. A big part of the problem is supply-side policies in the market for scientific labor, which as Ken Boulding pointed out decades ago makes little sense compared to demand-side policies.

Anyway - if you want to learn more about the glut in the biologist labor market the person to read is Paula Stephan, and economist at Georgia State University.

Neumark et al. on future skill shortages

VoxEU has a shorter version of a longer working paper produced recently by Neumark, Johnson, and Mejia on projections of skill shortages (HT - Mark Thoma). I've been working through the working paper for my NBER chapter, particularly since it now looks like I'm giving a separate presentation on shortages. As you all might guess, I'm skeptical of this sort of forecasting. They don't have a good track record, in part because they can't project market responses. Often it's simply an extension of current supply and demand trends.

Neumark mentions a recent projection by Carnevale and his coauthors. I heard Carnevale present this at the Georgetown STEM workforce conference I went to a couple weeks back that I mentioned on here.

The STEM workforce conference yesterday

...was a great experience. Attribution isn't allowed, but a few things struck me that I'll try to reference more vaguely:

- The incentives of the administration officials there and of the economists there was really obviously different. I asked one question (about why a certain visa was tied to educational status rather than occupational status - which would have made a lot more sense and would have been a lot more efficient solution to one problem they were having in assigning visas), and the answer was simply that even though it was a de facto work visa, it was politically billed as a student visa, and so they couldn't tie it to anything to do with jobs.

- So some people support immigration restrictions, and that's pretty standard fare. Even if supproting orderly immigration necessarily involves some regulation of the migrant experience. But one thing that surprised me (although I guess it shouldn't have) was how many of those present treated visa quotas, etc., as a distortion of the market in that they supposedly artificially increased labor supply, which of course sounds exactly backward to me. For several years, the high-skill work visa had around 130,000 applicants but 85,000 slots - so they had to resort to a lottery. Many attendees saw this as a distortion that artificially increased labor supply by 85,000 workers. Of course I think it's far more accurate to think of it as a distortion that artificially decreases supply by 45,000 workers. It's not so much that some people were pro-quota. That didn't surprise me and really didn't even bother me. What surprised me was how many people (certainly not all) saw the natural state of things as being a closed labor market.

- I got some very good thoughts and insights on revisions for my NBER chapter.

- People are not their politics. One of the guys that aggravated me the most during the workshop because of his restrictive stance on high-skill immigration was really a pleasure to sit across from and talk to about other stuff during dinner.

- Someone made the demand vs. supply point on science and technology that I strongly agree with. We often treat science policy with supply solutions, when arguably we should have more demand oriented policies. There are no obvious failures in the science and engineering labor market. If we think we should put a man on the moon, we should pay to put a man on the moon. We shouldn't ramp up aerospace engineer education and assume a man will automatically be planted on the moon.

- It is smart, in organizing a workshop that will touch on immigration, to put the first discussion about immigration about halfway through. Every single discussion after that is going to come back to immigration. So if you don't want the workshop to become about immigration, don't put the immigration talks first.

- Similar to earlier points, the idea that labor markets work was notably suspect (this was less surprising to me). Also similar to earlier points, the economists in the room were more sympathetic to the idea that markets work. In this case, though, the administration officials were also very willing to accept the idea of labor market efficiency. It was the "policy analyst" types - the research types who weren't directly involved in the policymaking process - who were the most likely to question labor market efficiency. My co-author (a sociologist, actually) admirably stood up on this particular point.

At an all-day STEM workforce workshop

I'm looking forward to this.

Dynamics of the S&E Labor Market:
Projections, Regulations, and Employment Patterns
Hosted by ISIM at Georgetown University
Mortara Center for International Studies

The purpose of this workshop is to review projections of the demand for and supply of science and engineering (S&E) workers, regulations governing the admission of foreign S&E workers and employers, and hiring patterns in S&E labor markets. The workshop will discuss how projections are made and evaluated; current OPT, H-1B and PERM regulations and proposed changes; S&E employer hiring patterns and S&E worker experience over the business cycle. We plan another workshop on the impacts of foreign S&E students and workers.

Speakers will make 10-15 minute presentations, followed by discussion of the presentations made in each session. We are grateful to the Sloan Foundation for support of this workshop.

Projections of S&E Workers
Jim Voytuk and Peter Henderson, National Research Council’s Board on Higher Education and Workforce
Anthony Carnevale, Georgetown University

Regulating the Admission of Foreign S&E Workers: OPT, H-1B, PERM
Francis Cissna and Sharon Snyder, US Department of Homeland Security
Andrew Sherrill, US Government Accountability Office
Ruth Wasem, Congressional Research Service

Employer Hiring Patterns in S&E Labor Markets: the Natural Sciences, Engineering, and IT
Gerald Marschke, State University of New York-Albany
Norm Matloff, University of California, Davis
Hal Salzman, Rutgers University
Paula Stephan, Georgia State University

Perspectives from Employers, Unions, and Congress
Paul Almeida, AFL-CIO Department for Professional Employees
Lynn Frendt Shotwell, American Council on International Personnel

Summary and Conclusions

...and then they're wining and dining us.

Vannevar Bush: Not a dumb or reactionary guy

Tomorrow I'm presenting what I have so far on the engineering paper at the Urban Institute. I was looking for a quote from Vannevar Bush's Science the Endless Frontier (1945) to express this fear of massive science and engineering labor shortages. I've always liked Bush, but since almost anyone that talks about this issue that's not an economist (particularly those advising government, as Bush did) gets worked up about labor shortages, I figured there was a good chance that Bush raised the idea.

No such luck (at least as far as I can find). I read through his chapter on workforce issues, and while I wouldn't phrase everything quite how he did he has a pretty even keel on this stuff. The only time he mentioned anything like supply inadequacy was fairly legitimate - he was talking about the impact of the draft (a genuine supply restriction) on the number of enginering graduates. Of course a few years later a lot of soldiers would go back to school on the GI Bill and get those engineering degrees.

Question for readers on graduate school wage premiums

Has anyone ever heard of an estimate of a graduate school wage premium (i.e. - over undergrad)? I'm calculating wage premiums for engineering graduate school grads relative to undergrads, and then using Goldin and Katz's (2008) basic supply and demand approach I'm trying to work elasticities of substitution out of that. I'm getting somewhat lower grad school premiums than they got undergrad premiums. It all looks fine - that sounds plausible to me - but it would be even better if someone actually produced these grad school premiums before and mine are comparable. I'm not even sure I'll include the elasticities in the paper - I've got plenty of micro-data, but I'm not working off of many years. The relationship is surprisingly strong, but when a kid with a crayon and a penchant for connect-the-dots can do just as well with a print out of my data, I'm a little loathe to call it an "estimated elasticity of substitution".

If I could verify the magnitude of the wage premium with other literature, though, that would be great.

Part of a new paper on SSRN - thoughts appreciated

I'm done for now with the first section of the NBER chapter on the supply of new engineers. I've posted that and the introduction on SSRN here. The rest of the paper should be quicker to write - it's in a detailed outline, but I didn't include it here.

Any thoughts would be greatly appreciated. The audience is intended to be fairly broad - not just economists. Also engineers and policymakers. So I tried to explain things like self-selection models in clearer, non-technical language. If you can think of any way I can improve that I'd appreciate it.

Thanks for any thoughts. Of course I post more as I get it cleaned up.

A good passage from Boulding

Also in the manpower essay I mentioned in the last post. This is indirectly related to why demand policies are more sensible than supply policies on this stuff:

"There is no Single Well Defined End (SWDE) of Society, measured in bushels or gollops or even dollars. There are a great many different ends of a great many different people, some of which are competitive, some complementary, and some independent. Moreover, there is no such thing as manpower, save as a hot abstraction to be handled with long tongs. Not Manpower, but Men - with this cry I propose to arouse the populace to the threat which menaces them. I repeat, not manpower, but men: men in their infinite variety and sacredness, in their complex personalities and unfolding desires. Man as Manpower is all very well for a slave society, where man is a domestic animal, to be used for ends which are alien to him. But in a free society man is not manpower; he is not a donkey chained to a great churn for the production of SWDE. He is a free being, the lord of society and not its slave, the creator of demand as well as of supply. In these days we are all in danger of being overcome by the great Feudal myth of Society, a frowning overlord to whom we are all too subservient, even if he has the impressive title of Lord National Interest or even Lord Social Interest."

The point that he makes later on is that simply increasing a factor of production is not going to achieve the private or social goals that we may have. He starts with an oversimplified picture of the market - then he outlines where that breaks down, focusing particularly on externalities as a justification for public or social demand for certain things. But he makes the point that you don't satisfy that demand by artificially generating more factors of production. That is (1.) distortionary, (2.) an affront to a free society, and (3.) a misunderstanding of the economy as some simple machine where if you put in more inputs you automatically get out some "Single Well Defined End" as he puts it. Generating more manpower doesn't automatically produce this "Single Well Defined End" - the market will respond to demand for that "Single Well Defined End". This is the point he makes with respect to conscription - if there is a social need for military (he sees few - he's a Quaker), Boulding argues that armies should be financed, not conscripted. Soldiers should be bid for on the market by the government so that the labor market isn't distorted and forces of supply can respond to demand. It doesn't work the other way around. This "manpower view", applied to the science and engineering labor force, suggests that if we just generate more and more scientists and engineers the United States will be in a better, more innovative, more competitive position. This is (generally) not my view. I think some supply policies make sense of course. Diversity is a major problem in the scientific workforce, and those sorts of policies are good. Strengthening science education is never a bad idea. But trying to produce outcomes that you want by widening the pool of scientists and engineers is unwise. If there is a legitimate social demand that the market is not satisfying due to externalities or whatever other reason, then by all means, demand that outcome. Offer to pay for it. That's how the market achieves objectives - it satisfies demands. Simply increasing the factors of production, crossing your fingers, and hoping your desired outcome will come out the other end is not going to produce very good results. If we want world-class transportation, make an investment in transportation - don't double the amount of engineers and hope a transportation network will materialize. If we want a colony on Mars, make an investment in a colony on Mars - don't double the amount of aerospace engineers and astro-physicists produced per year. The market works, and it works by satisfying demand. So if there is a social demand that is not being met, go the market and demand it. The reallocation of factors of production in response to that demand generally functions pretty smoothly.

Two new books

I was at the library yesterday, and dropped by their book sale. I picked up two:

1. Kenneth Boulding's "Beyond Economics: Essays on Society, Religion, and Ethics". I haven't read much Boulding before, but I read some of the essays in here last night and enjoyed them very much. One of the ones I read was called "An Economist's View on the Manpower Concept" (1954), which was interesting because that's largely what my NBER paper is about - it addresses these concerns from so-called "manpower studies" that suggest we're going to have a great shortage of scientists and engineers. The same chicken-little concerns were there in the fifties, and Boulding refutes them well. Most economists have addressed the concerns well - virtually every study over the last sixty years that I'm aware of has been in agreement on that point. So that's interesting and Boulding is a talented writer - but towards the end he gets into another issue that I've been thinking of but hadn't heard anyone provide my perspective on before: the question of, if we're looking to achieve some social or public objective that requires professional labor - whether we should subsidize supply or demand for that labor. It seems to me that the demand side makes much more sense, and Boulding agrees - but a lot of people focus on labor supply policies here (even people I'm usually positively disposed towards on these issues - like Richard Freeman). In the essay, Boulding compares labor supply policies to the draft, and says of the draft that "it is unquestionably the most disastrous social invention of the past two hundred years, and I find it difficult to forgive the French for inventing it." He also has an essay called "Economic Libertarianism" (1965), which I haven't read in its entirely. I can fully endorse his framing of the argument in the initial paragraph: "I shall try to look at what I call the limits of libertarianism, particularly in regard to the role of exchange in the organization of society. I think freedom is a bit of a red herring here. The really crucial question is the role of exchange as an organizer. This is what the economic liberals, if we can call them that, care about. It is both the successes and the limits of this role of exchange which represent the real issue."

2. I also got a publication by the National Research Council called "Scientists, Engineers, and Track-Two Diplomacy: A Half Century of U.S.-Russian Interagency Cooperation". It's a history of American and Soviet scientific interaction throughout the Cold War, and afterwards. One of hte most interesting looking parts of the book is the appendix - which has lots of documentation of some of the initial treaties which set these exchanges and relations in motion. One of the things they include in it is a list of requests for exchanges - the Russians would say how many Russian scientists they wanted to study certain topics in the U.S., and for how long, and the Americans would request the same. It gives you a sense of the priorities of each regime, and also where they perceived they were at a disadvantage.